The Bank for International Settlements (BIS), in partnership with the central banks of Hong Kong and Israel, has successfully showcased that central bank digital currencies (CBDCs) can undergo settlement on centralized ledgers without infringing upon user privacy.
This joint venture, named Project Sela, has substantiated the feasibility of a retail CBDC that embodies the attributes of accessibility, competition, and security, all the while retaining the benefits of tangible cash, as described in a BIS statement.
The experiment predominantly focused on devising strategies to mitigate potential liquidity and settlement risks, aiming simultaneously to maintain low operational costs.
An instrumental approach in maintaining minimal costs was the introduction of the “Access Enabler” solution. According to BIS, this system permits merchants to be a part of the network and handle settlements without the necessity to possess the users’ CBDC directly.
Further emphasis was also placed on streamlining processes for service providers, making it easier for them to embrace and operate using the CBDC. Additionally, considerations were made to distribute specific responsibilities linked with CBDC accounts between the public sector and private sector organizations, optimizing efficiency and collaboration.
Preserve the ‘desirable attributes of cash’
The BIS asserts that a retail CBDC ought to retain the “desirable attributes of cash.” These attributes, as per BIS, encompass broad accessibility, immediate settlement capability, cost-effective usability, and an adequate measure of privacy.
Highlighting the aspect of privacy, the BIS pointed out that the CBDC deployed in Project Sela ensures user confidentiality by masking personal identifiers.
Sharing his thoughts on the undertaking, Howard Lee, the Deputy Chief Executive of the Hong Kong Monetary Authority (HKMA), expressed that the project has provided invaluable insights. It has shed light on the practicalities of implementing a retail CBDC, not just in the context of Hong Kong but for other regions as well.
Howard Lee of the HKMA remarked, “Even though a definitive decision regarding the launch of a retail CBDC in Hong Kong hasn’t been made, the findings from Project Sela will undoubtedly guide our continuous exploration into the potential of an e-Hong Kong dollar.”
Lee further expressed the broader implications of their project, stating, “We are optimistic that the insights from Project Sela can serve as valuable references for other central banks as they assess various retail CBDC frameworks.”
